Treasurer Torsella Issues Statement on Sers Asset Allocation Changes

Pennsylvania State Employees’ Retirement System changes increase risk and cost


Harrisburg, PA – Pennsylvania Treasurer Joe Torsella today issued the following statement on SERS’ recent adoption of a new asset allocation strategy which places significantly more Commonwealth assets into so-called “alternative” investments.


“I am deeply troubled by SERS’ new asset allocation strategy that will result in an extraordinary 38% of total fund assets in illiquid, high-risk, and exorbitantly high-fee “alternative” investments. This would be a significant increase from the already high level of 30% currently, and would be higher than 85% of US pension funds. For a system that has made significant progress recently, this decision will be a real step back.


Like everyone, I hope that financial markets will only rise steadily, but it would be dangerous and foolish to plan for that outcome. In the event of a major market correction like the one experienced in 2008, large exposure to illiquid assets such as private equity, hedge funds, and real estate funds—where money is tied up for 10 years or more—can be treacherous. We could find ourselves forced to sell investments at a loss at the very worst time to meet payment obligations. We have seen this movie before in Pennsylvania, and it did not turn out well for retirees and taxpayers. The losses SERS was forced to realize in 2008 are part of the reason the fund only has under 60 cents for every dollar it will need for future payments to retirees.


It is a deeply flawed assumption to believe that any set of investment consultants can reliably pick winners and losers, and the track record at SERS confirms this. 70% of SERS’ hedge fund managers and 83% of private equity managers have underperformed their benchmarks. Meanwhile, in chasing the elusive prospect of “outperformance”, the only certainty is that these secretive, complex, and illiquid investments will cost hundreds of millions more in unnecessary Wall Street fees over time, paid for by PA retirees and taxpayers.


I hope for the best possible results from all SERS investments, but believe now is the time to reduce—not increase—the system’s risks, and will urge SERS to revisit this decision.”


Pennsylvania Treasurer, Joe Torsella
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